Our opinion on the current state of SAP

Sappi (SAP) manufactures paper, dissolving wood pulp (DWP) and paper pulp internationally and supplies products in 150 countries. DWP is used to manufacture clothing, packaging products and many other applications. DWP, specialty and packaging products were seen as the profit generator in the future, but until recently, the price of DWP had fallen sharply. Then in 2021 the price of DWP began to rise as demand from China surged. It is directly linked to the level of consumer spending, and it is well diversified geographically, selling products in 150 countries. The company said that the civil unrest in July 2021 had cut its profit by R220m. The company has had problems with the backlogs at Durban port and rising energy costs. On 13th April 2022, the company reported that the excessive flooding in the Natal province had caused it to close three of its mills. The company claimed $28m (about R430m) from insurers. On 21st April 2022, the company said that there had been no material damage and that operations had resumed, but 23000 tons of production was lost, and 45000 tons of inventory was damaged. In an update on the quarter to 1st March 2023 the company reported HEPS down 67%. The company said, "Sappi delivered an EBITDA excluding special items of US$167 million against a backdrop of a challenging global economy and significantly weaker paper and pulp markets". In an update on the nine months to 30th June 2023 the company reported sales down 18% and headline earnings per share (HEPS) down 43%. The company's net asset value (NAV) was up 6% at 446c per share. The company said, "The Group faced persistent challenges in the global economy and encountered ongoing weakness in paper and pulp markets, leading to a reduction in EBITDA to US$106 million for the quarter ended June 2023". In its results for the year to 30th September 2023 the company reported sales down 20% and HEPS down 62% in US dollars. The company's net asset value (NAV) was 5% higher at 438c per share. The company said, "The widespread disruption caused by ongoing geopolitical instability, weak global economic growth, rising interest rates, and an underperforming Chinese economy negatively impacted markets for our products". Technically, the share has been trending down since May 2022. It is essentially a commodity share and hence somewhat risky.